M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

Friday, July 30, 2010

Now that's insider trading!

You know, I can't understand why people risk so much (career, reputation, family) for so little.  How many times have you heard about the lawyer who gave in to the temptation to trade on client confidence only to reap $5,000 profit and an indictment.  Now, comes word of two guys who know what they are doing.  The SEC alleges that the Wyly brothers of Texas used a series of offshore trusts and corporations to engage in a monumental sized insider trading scheme to the tune of $750 million worth of stock and profits in excess of half a billion dollars!  On one series of transactions they allegedly earned more than $30 million. "Go big, or go home" as they say.  

According to the SEC's complaint, filed in U.S. District Court for the Southern District of New York, the public companies the Wylys used in the scheme were Michaels Stores Inc., Sterling Software Inc., Sterling Commerce Inc., and Scottish Annuity & Life Holdings Ltd. (now known as Scottish Re Group Limited)

 The SEC's complaint alleges that the Wylys and French knew or were reckless in not knowing their legal obligations as public company directors and greater-than-five-percent beneficial owners. The laws require such persons to report holdings and trading in their companies' securities on Schedule 13D and Form 4, which are filed with the SEC. The Wylys and French also knew or were reckless in not knowing that the investing public routinely uses such disclosures to gauge the sentiment of public companies' insiders and large shareholders about the financial condition and prospects of those companies, relying on those disclosures when making investment decisions.

The SEC alleges that the Wylys and French systematically and falsely created the impression that the Wylys' entire holdings and trading were limited to the fraction that they held and traded domestically. By depriving existing shareholders and potential investors of information deemed material by the federal securities laws, the Wylys were able to sell — in large-block trades alone — more than 14 million shares of issuer securities over a period of 13 years for undisclosed gains in excess of $550 million. The SEC further alleges that the sales generating most of these illicit gains were made pursuant to materially false or misleading SEC filings.

Read the complaint here.  My first reaction was, “Thank goodness the Wylys not lawyers.”  Then I realized that their alleged co-conspirator is French, the lawyer.  And, that their entire scheme would have been impossible without the help of a lawyer.  In fact, as far as I’m concerned if what has been alleged is true then the lawyer is at the heart of this decade long scheme.  It gets worse.  The lawyer was not content to simply set up and help run this conspiracy (while also sitting on boards), but he is alleged to have set up his own (smaller) network to carry out similar trades.  If you are a rising 3L studying for your MPRE next week, these guys as described in the SEC's complaint are not exemplary figures. 

I doubt ignorance of the disclosure rules will fly as an excuse (from the complaint):

Moreover, by the time the fraudulent scheme detailed herein commenced in early 1992, Sam Wyly and Charles Wyly each had over twenty years' experience as public company directors and Schedule13D and Form 4 filers; and Michael French had over twenty years' experience as a federal securities lawyer. They were each thus on abundant notice of the relevant SEC reporting obligations.

The SEC alleges that the Wylys with help from their lawyer used their positions as directors of public companies to trade on inside information in advance of mergers and other material corporate transactions.  You know, like during the Gilded Age, when public company directors routinely traded on inside information. 

In October 1999, after having agreed to put Sterling Software on the selling block, the Wylys had their Offshore System enter into a bullish offshore transaction in the form of a security-based swap agreement with Lehman Brothers that economically replicated the purchase of two million shares of Sterling Software for approximately $20.36 per share. Based on Sterling Software's closing price of$36.25 on February 14, 2000-the date that Sterling Software's agreement to be acquired by Computer  Associates was announced-the Wylys' illegal imputed profits from this transaction totaled approximately $31.7 million.

In what universe can someone think that this kind of activity would not violate federal securities laws?!  They probably knew it violated lots of securities laws, but that doesn’t seemed to have mattered much (again from the SEC's complaint).

As high level insiders of the Issuers, the Wylys and French were aware of the negative impact that sales by them of Issuer Securities-including the above detailed large-block sales-would potentially have on the Issuers' share prices if they were disclosed in accordance with law. In effecting these sales offshore, the Wylys and French were motivated by a desire both to avoid such declines and to eliminate any risk thereof. On March 24, 1995, for example, French wrote to Sam Wyly that filing of "insider sales reports ... seem to set everybody off" and that selling offshore without making such filings would facilitate "pull[ing] some gains out ... without attracting any attention." In September 2001, Sam Wyly elected to forgo an onshore collar transaction in Issuer Securities and instead attempted the same transaction offshore, in order to avoid any bearish signal to the market; and Charles Wyly, in September 2003, took a similar action for the same stated reason.

Hmm.  The best way for an insider to pull out some gains without attracting any attention is with a planned sale program.  Lots of firms have them.  Maybe the Wylys have heard about such programs.  On the other hand, planned programs are terrible if you want to make money on inside information about a pending transaction.  So, I can understand why one might neglect to pursue that option.  You’ve got to hand it to them.  They’ve got guts thinking that they could carry this out for so long.  ... And there’s a question worth asking.  How is it possible that the SEC, brokers, I-Banks, etc let them get away with this for so long?  I mean $500 million is still a lot of money.


July 30, 2010 in Insider Trading | Permalink | Comments (1) | TrackBack (0)

Thursday, July 29, 2010

Corporate Governance Around the World

I spent some of this week in Washington, D.C. at the XVIIIth International Congress of Comparative Law.  The congress, which is presented by the International Academy of Comparative Law and the American Society of Comparative Law is taking place all of this week and is hosted by three local law schools, American University Washington College of Law, George Washington University Law School and Georgetown University Law Center.  The conference is a wonderful gathering of jurists, lawyers and scholars from around the world.

Part of the week’s events involves the delivery of general and national reports on a variety of legal issues.  This year the International Academy of Comparative Law has decided to deal with corporate governance in a session at its 18th International Congress on Comparative Law and has commissioned a general report, as well as various country reports on the matter.  The general report, which is based on 32 country reports, focuses on (i) Corporate Governance: Concepts and General Problems; and (ii) the Board and the Shareholders as the Two Key Actors in Corporate Governance.  There are also links to specific country reports.  For those interested in a broad comparative survey of corporate governance issues, the reports are a useful summary. 

- AA

July 29, 2010 in Asia, Cross-Border, Europe | Permalink | Comments (0) | TrackBack (0)

Wednesday, July 28, 2010

ASU Business Law Prof

      The Sandra Day O'Connor College of Law, the oldest and largest law school in the nation's fifth largest city, has embarked on a program of transformative growth. Over the past two years the College has experienced record levels of giving, amassed the largest scholarship funds in its history, enrolled its two best entering classes ever, and dramatically increased the size of its faculty and programs. To continue with this ambitious agenda, the College of Law invites applications for faculty positions at all levels, including highly distinguished lateral and entry-level candidates. 

     We invite applications from outstanding individuals in any subject area, although there is some preference for individuals who specialize in business law (including business associations, securities, and finance), commercial law (including bankruptcy and consumer law), land-use and sustainability, empirical studies, transnational issues, and immigration. In addition, the College of Law will be looking to interview highly qualified candidates for a position as Clinical Director within the newly established Diane Halle Center for Family Justice. All individuals with established records of scholarly productivity, experience and interest in administration of centers, and a strong commitment to institutional innovation and growth are encouraged to apply.

     Candidates must have a J.D. degree, or a Ph.D. degree in an area related to the law school curriculum. Candidates must also have teaching, research, or other professional experience appropriate to rank. Application deadline is December 1, 2010; if not filled, the 1st of each month thereafter until search is closed. 

     Please submit resume to:

     CONTACT:       Ms. Nancy Gregory
                    Coordinator for Appointments Committee
                    Sandra Day O'Connor College of Law
                    Arizona State University
                    1100 S. McAllister Avenue 
                   Tempe, AZ 85287-7906
     Email:         Nancy.Gregory@asu.edu

     Additional information about the Sandra Day O'Connor College of Law and Arizona State University is available at:


     ASU is an equal opportunity/affirmative action employer.

July 28, 2010 | Permalink | Comments (0) | TrackBack (0)

Monday, July 26, 2010

Scoundrels in Law

Scoundrels  Another edition of things I'm reading cause it's summer:  Scoundrels in Law: The Trials of Howe and Hummel, Lawyers to the Gansters, Cops, Starlets, and Rakes Who Made the Gilded Age by Cait Murphy.  This is a great book about the practice of law in the 19th century.  It will take you back to the days of "Tearful Tom" Shearman and his partner, John Sterling.  You remember them, right?  I think their firm is still around.   Anyway, Tearful Tom was known not only for representing Jay Gould and Jim Fisk, but also for being able to turn on the tears in front of a jury at a moments notice.  This type of over the top performance was typical of lawyers of the Gilded Age.  Who does that now?  When was the last time you saw someone drop to their knees during a negotiation to beg for a provision, or bawl at a deposition?!

Murphy reminds us that the Gilded Age was really the Wild West for the practice of law.  Howe and his partner Hummel were ready and willing to bribe judges, hire witnesses, suborn perjury - whatever was required to get their clients off.  These two even had a side role as lawyers in the trial of Diamond Jim Fisk's murderer. Scoundrels in Law takes the reader from Delmonico's to the Tombs in a tour of the 19th century legal profession in New York City.  They weren't doing big deals, but I bet they were having fun.   Every student of law should read this very entertaining and informative book in conjunction with their legal ethics class! 


July 26, 2010 in Books | Permalink | Comments (0) | TrackBack (0)

Sunday, July 25, 2010

BP Asset Sales

Seems like BP is aggressively seeking to shed assets in a bid to generate cash to fund the $20 billion compensation account for the damages associated with its ongoing mess in the Gulf of Mexico.   BP started with series of sales of Alaskan, Canadian and Egyptian-based assets to Apache, raising $7 billion.  Now comes word from the Vietnam News Agency that BP plans to sell its interests in Vietnam.  These include the Lan Tay and Lan Do offshore gas fields which have been producing for more than a decade, the Nam Con Son gas field, as well as BP's 720MW Phu My gas-fired power plant    The sale may generate an additional $1.3 billion for Gulf compensation fund.


July 25, 2010 in Asia, Asset Transactions, Current Events | Permalink | Comments (0) | TrackBack (0)

Snooki and the Poison Pill

For those of you who didn't get Vice Chancellor Strine's pop-culture "Snooki" reference during day four of the BKS poison pill trial, the New York Times Fashion & Style section has helpfully provided all you need to know (here). 


July 25, 2010 | Permalink | Comments (0) | TrackBack (0)

Thursday, July 22, 2010

Dodd-Frank and M&A

We at the M&A law prof blog haven’t spent much time addressing the new financial reform bill, but those who are interested should definitely read through the terrific masters forum on the Conglomerate addressing various aspects of the bill.   There are also many other useful blogs addressing the bill, but it would take a whole page just to list all of them (although do keep up with the Harvard Corporate Governance Blog and the conglomerate for good links).

For day-to-day M&A deals, the most immediate relevant provision is “say on golden parachutes” which requires that in any proxy or consent solicitation for a meeting of shareholders occurring 6 months after the date of enactment of the Act (i.e. starting in January 2011) where shareholders are asked to approve an M&A transaction, companies must provide their shareholders with a non-binding shareholder vote on whether to approve payments to any named executive officer in connection with such M&A transaction.  It’s worth taking a look at this Cleary Gottlieb client alert on what exactly this means for M&A deals and what isn’t clear (as you may guess, there is some lack of clarity!).  For others who want more detail, Davis Polk (disclosure: my former employer) has a useful 130 page summary of the bill, plus a set of super nifty regulatory implementation slides which are pretty helpful in understanding what needs to be done next.  Of course, you can also read all 2300 pages of the bill…

- AA

July 22, 2010 in Current Events, Executive Compensation, Regulation | Permalink | Comments (0) | TrackBack (0)

Tuesday, July 20, 2010

Playboy and the New Unified Standard?

One transaction that's been drawing a lot of attention in recent days is Hugh Hefner's bid to take Playboy Enterprises (don't worry, the link is safe for work) private for $5.50/share.  Hefner presently owns 69.5% of PEI’s Class A common stock and 27.7% of PEI’s Class B common stock.  The Class B stock is no vote stock.  Because Hefner is the controlling shareholder, the transaction when it's reviewed by the courts (and it will be - see para below re lawsuit already in place) will be subject to one of the controlling shareholder standards, depending on the form which the transaction ultimately takes place.

Vice Chancellor Laster's decision in In re CNX Gas brought this issue to fore.  He invited the Delaware Supreme Court to weigh in on the various standards governing controlling shareholder transactions with back end freeze-outs and proposed a unified standard (also see In re Cox Comm'n).  The proposed Playboy transaction may give the courts an opportunity to weigh in on the unified standard.

Some of this is a bit premature, as the parties have not yet agreed to terms, much less to a structure for this proposed transaction.  However, the current state of the doctrine can and should influence decisions on how to structure the transaction.  In short, a negotiated transaction with a controlling shareholder in the form of a statutory merger will, upon a challenge, be subjected to entire fairness review (Kahn v Lynch).  On the other hand, if the transaction is structured as a unilateral tender offer followed by a Sec 253 short form merger, the board's actions with respect to the transaction will receive the deferential business judgment standard (in re Siliconix).   Of course, if you're Hefner and you're worried about a possible legal challenge, you structure the transaction as a unilateral tender offer with a back end freeze-out.  

Of course, the unilateral route leaves the door open to a topping bid - Penthouse (Friend Finder) is already interested.  And some have already asked whether the Playboy board must the company to the highest bidder (i.e. Penthouse).  Of course, the board is free to pursue an auction. But, there's a problem.

Hef doesn't want to sell.  According to the PLA's announcement, Hefner is not interested in third party offers.

In the proposal letter, Hefner advises the board of directors that out of Hefner’s concerns for, amongst other matters, the PEI brand, the editorial direction of the magazine and PEI’s legacy, Hefner is not interested in any sale or merger of PEI, selling Hefner’s shares to any third party or entering into discussions with any other financial sponsor for a transaction of the nature proposed in the letter.

Although as controlling shareholder, Hefner has an obligation to deal fairly with minority shareholders, such a duty does not require him to sell if he doesn't want to.  If the board doesn't want to do a deal with him, Hefner is free to vote 'no' to any other deal they propose, or in the event the alternative transaction is structured as a tender offer, not to tender his shares. 

The result may well be that Playboy gets sold to Hefner at a "fair" price not necessarily the highest price.  For shareholders, that's just the cost of buying a minority position in a company where there is a control block.  Don't expect much of a premium.

The inevitable lawsuit:
No surprise, a
lawsuit has already been filed with respect to this transaction. The general allegation is that the board violated its fiduciary duties to the corporation for selling Playboy to Hefner "too cheaply."  Let's put aside the question of whether such a Revlon claim has any real legs.  I'd just like to flag that the lawsuit alleges the board sold the company too cheaply. They seem to have jumped the gun.  No one has announced a sale, simply that Hefner has made an offer.  The board hasn't even made a recommendation, yet.  

I suspect, given that there's already a lawsuit in place accusing them of fiduciary wrong-doing that the board will take its time and pay close attention to the sale process.


July 20, 2010 in Going-Privates | Permalink | Comments (0) | TrackBack (0)

Thursday, July 15, 2010

Corporate Governance Reforms in India

So I’ve been away for a while with a research trip to India and then madly trying to finish a couple of papers related to the trip.  Before I left, I blogged about some of Vice Chancellor Strine’s comments during his lecture at Stanford’s Rock Center for Corporate Governance.  I think that some of Chancellor Strine’s comments on the efficacy of independent directors should be a warning for those pushing for corporate governance reforms in other countries.  I have written previously about the potential pitfalls of importing US-style corporate governance rules with respect to India.  I’ve now posted another paper entitled "The Promise and Challenges of India’s Corporate Governance Reforms" which addresses some of the recent reform efforts following the Satyam scandal and the continuing barriers for effective corporate governance.  The paper is forthcoming in the inaugural issue of the Indian Journal of Law and Economics.

Recently, there has been some very interesting work on independent directors in India, particularly arising out of unprecedented independent director resignations following the Satyam scandal.  The Indian corporate law blog has a very useful post about recent academic literature on corporate governance norms, including the value of independent directors, in India.  For those interested in India, all of the papers are worth a careful read.

I think that while the independent director model has much to recommend, there are serious constraints to the model for the Indian context.  There is a danger that simply pushing for independent directors will not fully address some important corporate governance concerns in India, particularly the pervasive influence of promoters and controlling stockholders.  Others, in particular Umakanth Varottil, have also written on this issue.  I highly recommend Umakanth’s recent paper entitled “Evolution and Effectiveness of Independent Directors in Indian Corporate Governance” for anyone who is interested in corporate governance reforms around the globe.

I’ll soon be posting more on other projects related to this trip to India, including a paper on outbound M&A by Indian firms.  Stay tuned…


July 15, 2010 in Asia, Cross-Border | Permalink | Comments (0) | TrackBack (0)

Wednesday, July 14, 2010

Help Wanted - Business Law Prof

The University of Cincinnati College of Law invites applications from entry-level and lateral candidates for as many as two tenure-track or tenured faculty positions in a broad number of areas, including agency/partnership/unincorporated business associations,  civil procedure, commercial law, corporations, criminal law, criminal procedure, employment and labor law, evidence, immigration, international law, property, torts, and wills and trusts.  We also seek applications for visiting faculty positions in those areas. 

All applicants should have a distinguished academic background and either great promise or a record of excellence in both scholarship and teaching. The University of Cincinnati is committed to a diverse faculty, staff, and student body.  We encourage applications from women, people of color, persons with disabilities, and others whose background, experience, and viewpoints would contribute to the diversity of our faculty. 

Contact:  Professor Verna L. Williams, Chair, Faculty Appointments Committee; University of Cincinnati College of Law; P.O. Box 210040; Cincinnati, OH 45221-0040

July 14, 2010 in Academic Jobs | Permalink | Comments (0) | TrackBack (0)

Tuesday, July 13, 2010

Yucaipa v Barnes & Noble (day 4)

Today is the last day of the Yucaipa v Barnes & Noble trial in Delaware with Vice Chancellor Strine presiding.  Once again, I get to watch courtesy of Courtroom View Network

B&N's outside counsel from Cravath, Scott Barshay is back on the stand.  Says that the "family transfer provisions" that got Burkle so upset early on weren't the idea of anyone in the company and that it all came from Cravath.   Barshay is walking through the process of adoption of the rights plan and its amendments.   And very quickly the defense is done.

Barshay  Defense713

Barshay is now on cross examination.  

- "Mr. Barshay, isn't it a fact that the first time you met any members of the board was five minutes before the pill was adopted?"  

- "Yes."

Five minutes?  Ouch. 

Counsel is trying to tag Barshay for immediately considering adoption of a rights plan once Burkle surfaced.  There's an objection.  Strine steps in to calm the children, noting that considering the adoption of a pill would not be an altogether uncommon response.   

Pushing Barshay again on his knowledge of the board before he met them for the first time.  It sounds like he had no idea who was going to be in the room or the background of anyone on the board.  How is that possible?  He certainly didn't give a lot of push back on that line of questioning.  

Lots of questions regarding the presentations on the rights plan that Barshay prepared for Daniels (24 pages) and the 2 page presentation for the board.  Seems like a pretty standard overview of how pills work.  Hope B&N didn't pay too much for it.  I could have told them the same for less.  

Shoutout for Chuck Nathan!  An article by Chuck Nathan gets commended to the viewing audience.   I guess that's me.  I suppose I should find out which article they are talking about.

  "Does the pill as it stands does not prevent Riggio and his family from acquiring more stock.  Is that correct?"  


Because Riggio's adult children aren't living with him, they are not affiliates and don't trigger the beneficial ownership definition under the pill.   Barshay tries to push back by pointing to the 13D group requirements, but concedes the defense's general point.  Tries to argue that Burkle's kids could buy stock and not trigger the beneficial ownership rules.  Defense counsel corrects him by noting that Burkle's kids live with him so, no.  Now working through some pill math.  Counsel makes the point that the board can accumulate stock without triggering the rights plan while Yucaipa's acquisition of stock would trigger the plan.  Cross examination is done.

On re-direct - discussion of whether or not a pill can impede a proxy contest.  Barshay's view is that a pill is not triggered by a proxy contest.  Indeed, notes that no pill as ever been triggered by a proxy contest.


 Strine asking some questions regarding setting of the trigger for the pill at 20%.

Mr. Barshay is excused.  B&N lead director Michael Del Giudice is called.  


Lots of questions regarding Del Giudice's background and how he came to the board.  Everybody - including Strine - is reliving the unfortunate Dukakis presidential campaign and the "tank" incident for which Del Giudice disclaims any responsibility.  

Back from the morning break and the plaintiffs object to agreement that has not been produced.  The agreement disclaims Del Giudice's financial interest accruing to Rockland that result from any Riggio investment in Rockland.   Strine doesn't appear happy that the document hasn't been produced and rules as such.   

OK, back to direct testimony.  Discussion of the board meeting at which the pill was adopted.   Interesting, but not surprising - Riskmetrics' reaction to a pill adoption was a topic of conversation in the boardroom and that the pill was designed in order to be as "Riskmetrics friendly" as possible.

Now on cross, plaintiff's counsel is all geared up for a "Law & Order" gotcha moment, but technical difficulties screw it up.  That, and the fact that Del Giudice immediately offers up that he was wrong in his deposition that mistated that Zivaly was not an independent director.  You could almost see plaintiff's counsel say - not so soon!  I'm not there yet!  

I suspect the next couple of minutes will be anticlimatic.

Why are they dragging up the ghost of the Dukakis campaign again?  Do they have to ask whether Dukakis won 10 states?  Really, where does that get us?    Painting Del Giudice as a political fund raiser and Riggio as one of his "go-to" money guys in NY Democratic circles.  Don't think that'll go far. Plaintiff's counsel have moved on to describe the various investments that Riggio has made in Del Giudice's Rockland entities.  This might have more legs.  Riggio made a $20 million investment in Rockland.  

 I think plaintiffs might be confusing (or obfuscating) good corporate governance with the corporate law.  Plaintiffs seem to be implying that because the B&N board is waiting for the SEC to implement rules with respect to independent compensation consultants before it changes its own policy that there is some sort of conflict.  That's a weak argument.


    Q: If stockholders got together and voted to pull the pill, would that trigger the pill?

    A:  If there is an arrangement or understanding to vote against the pill, that would trigger the pill.

That seems like the wrong answer.  What good is stockholder approval of the pill if stockholders can't organized to vote against it?   This question is better asked of the Cravath lawyer.  Del Giudice isn't a legal expert and shouldn't be permitted to provide a legal opinion on the mechanics of the pill.   Del Giudice has clearly moved beyond his level of knowledge and he knows it. 

Break for lunch.

Back from lunch.  Couple of questions about whether a group of stockholders representing 20% of all the shares might be required to pay a premium to vote their shares for a director.  I'm not sure what that's supposed to mean, but whatever.  Plaintiffs are done.

Del Giudice is now on re-direct.  Turns out Riggio's $20 million investment is not yet funded.  

Del Giudice is excused and defense rests.  Various motions regarding admission of evidence. 


Strine is venting (for the benefit of the viewing audience apparently) about the lack of tabs and readability of post-trial briefs.    


Look at this thing -- no tabs!

Strine is now riffing on the European takeover directive and creeping takeovers.  The pill here is being used in a somewhat unusual circumstance.  Now you have two block-holders and how to do you deal with them?  Eichler and Aletheia seems a mystery to Strine.  Why do they refuse to vote their shares?  He thinks they may have their own fiduciary issues.   He's giving hints for post-trial briefs.  

There is skepticism factor that Yucaipa will face in a proxy contest because they are unwilling to make an offer or go on the board.  

Snooki?!  Yes, Snooki is a character on that Jersey show.  How did Snooki make an appearance in Strine's comments?  Anyway.

The 20% threshold is sticking in his mind - because Riskmetrics will focus on it - that why the board went for that number.  What's not sticking in his mind is whether the board considered or should have considered a larger trigger because of the Riggio block already in place.   

It's clear that the differential trigger has gotten Strine's attention - and not in a good way. 

Yucaipa needs to sharpen what it wants in this trial - do you want to acquire more shares?  Do you just want to feel love?  Compares Yucaipa to an adolescent who wants to ask a girl out, but only if she will say yes...

And thus ends Strine's rambling.  Briefs are due on Friday evening and then answering briefs on Monday evening.  Post-trial arguments will occur late next week. 


July 13, 2010 in Cases, Delaware, Takeover Defenses | Permalink | Comments (0) | TrackBack (0)

Monday, July 12, 2010

Yucaipa v Barnes & Noble (day 3)

Once again thanks to the folks at Courtroom View Network, court in Yucaipa v Barnes & Noble is back in session with VC Strine presiding.  Nachbar has some initial objections with respect to demonstratives used with those reports.  

Kenneth Nachbar making his objections:


 VC Strine sounds like a guy who bet on the Netherlands.  Not happy about a demonstrative prepared over the weekend.  Oh, no.  We're back at 6th grade math.  The objection is to a demonstrative prepared by the plaintiff to walk through the 6th grade math that caused Strine to break out in a cold sweat on Friday. 

VCS:  "It's out.  ... Honestly speaking, if it's so simple, you could have gotten [the demonstrative] to them on Saturday."


OK, moving on.  Now, Daniel Burch, plaintiff's expert, is back on the stand discussing proxy contests and solicitation of proxies.  VC Strine is now questioning Burch regarding how one puts together a proxy contest without triggering a 13D filing.   Burch is now on cross.  Lot's of challenges to the fact that the first draft of his report was prepared by an associate and that he made subsequent corrections to it. 

Colloquy between Strine and Burch:

Strine712  Birch

On re-direct.  I'm surprised that actual ownership percentages of B&N are really still in issue.  Now some discussion about probable votes in the case of a proxy contests.  Here's a demonstrative chart comparing Burch's report and the defendant's expert (Harkin).  We'll hear from Harkin later.


 Nachbar objects to leading questions.  Sustained. But, with a warning - if Nachbar wants to be "persnickety" then Strine will let the plaintiffs be persnickety later.  I expect there will be fewer of these objections going forward.  

VCS to Burch:  You are free to stretch your legs and enjoy the Dunkin Donuts on the subterranean level of the courthouse.  Burch is excused.

And that's it for the plaintiff's witnesses. 

Defense calls their expert, Peter Harkins.  While the plaintiff's experts have tried to make the argument that the shareholder rights plan would make it impossible for a dissident to win a proxy contest, Harkins is making the argument that a dissident can win a proxy contest.

On cross:  generating these table and charts just requires math, right?  Right.  Why are we talking about math, again?  VC Strine is quiet this morning...maybe mulling the World Cup.

Breaking for lunch.

Back.  Harkins is back on the stand under cross.  Lots of questions about Alethia's voting (or no-voting) policy.  

Strine interrupts to give both sides a hint about what he's thinking. He wants some help with his "limited mind" in post-trial briefings.  Specifically, how or why people on either side think that Alethia might at the same time have a policy not to vote its shares and at the same time help finance a proxy contest.  It doesn't make sense to him and he'd like people to think about it and explain it to him in post-trial briefs.

Back to cross.  Harkins is dismissed after a brief colloquy with Strine regarding the scope of his expert testimony. 

Next up for the defense - Jennifer Daniels, former GC for B&N.  

She is testifying about the early stages of B&N's adoption of the pill.  The argument that the defense is making here is that Jennifer Daniels, as a good GC, moved on her own to start things moving on the adoption of the pill - it's all good corporate stewardship and nothing to do with Riggiio actively seeking to stop Burkle from running a proxy contest.  

On cross - 

     PL Lawyer: Ms. Daniels, did you think you might be a witness in Delaware on this issue?

     JD: I was told I might have to give a deposition, and that a I might be required at trial, but was told at the time that "we're not there yet" ...

     VCS: Oh, but now the dream has come true and here you are...

Since Daniels is no longer an employee of B&N (she's at NCR now), she's appearing voluntarily.  Plaintiffs appear to be trying to make her look like a tool of Cravath and an incompetent lawyer.  

      You didn't advise the board that Morgan Stanley had been paid $4 million for its work in the College Books transaction? Morgan Stanley also advised on the rights plan.   

Don't know if that will fly.  Anyway, she's getting annoyed. Strine injects some more levity and then orders a recess.  

Back again.  Plaintiffs return to the line of questioning suggesting that hiring MS was a conflicted transaction because Riggio had previously hired MS in the College Books transaction and that Daniels is a bad lawyer because she listened to outside counsel on the issue of MS.   The independent directors didn't get their own counsel - separate from company counsel - with respect to the question of adopting the rights plan.  This issue is potentially problematic, but will it have legs? 

On cross, plaintiff's attorneys are now trying to paint Daniels as being motivated by how to protect Riggio's position when she was having discussions with Cravath.  She answers that she was thinking about all the possible questions that she might be asked.   I wonder if this impresses Strine.  Surely, he's hand plenty of contact with GC's like Daniels.   We'll see.  He's been quiet.

Ouch.  Draft minutes of board meeting are in evidence.  OK, you're all on notice - never let a junior lawyer draft minutes of a board meeting cause the other side is going to enter them into evidence.  And the plaintiffs are done for the day. 


July 12, 2010 in Cases, Delaware, Takeover Defenses | Permalink | Comments (0) | TrackBack (0)

Friday, July 9, 2010

Yucaipa v Barnes & Noble (day 2)

Again, courtesy of Courtroom View Network, I'm a fly on the wall of the Barnes & Noble poison pill trial.  Greg Taxin is back on the stand and now being questioned by Vice Chancellor Strine.   It's more like a conversation between two very informed people than it is a witness examination.  Vice Chancellor Strine has already made a reference to Michael Vick getting off.  This is going to be fun.    


Strine and Taxin this morning - 

VC Strine - B&N 2  Taxin-B&N 

Taxin is making the general argument that the B&N pill is novel because it's intended not to prevent a takeover, but to prevent blockholders or large shareholders from taking collective action (i.e. running a proxy contest).  Strine doesn't seem like he's on board with this, yet.

VCS: "Blockholders ... it's starting to look like Italy around here without the benefit of the food..."

Taxin is now being questioned regarding an amendment to the beneficial ownership definition and what B&N might have been trying to accomplish with its amendment:

Beneficial ownership

Taxin now under cross examination.  Got the assignment to write an expert report in the middle of June and turned around a final report in three days.  That's quick. 

Trying to make Taxin do math in his head while on the stand.  OK, I admit, I'd fail that test. C'mon give the guy a piece of paper.  

More math...this time Nachbar has helpfully done it ahead of time and provided it on a piece of paper to Taxin.  

OK, now they are arguing 6th grade math ... fractions ... I'm going to go out on a limb and suggest that Taxin is better at 6th grade math than Nachbar. ... Strine breaks out in a "cold sweat" due to the geeky back and forth over numerators and denominators.  ...  I'm going for a cup of coffee.  

Back again ... Taxin is now trying to teach Nachbar why an increase of 1 million shares in the numerator is not the same of an increase of 1 million shares in the denominator ...

Now back and forth  - not about the expert report but about whether Taxin understands an institutional investor's deposition testimony to mean that the third party admires Ron Burkle or not.  Hmm.  

Uh ... is Taxin suggesting that the database he relied on to write his report doesn't include any cases of hostile acquisitions where there was a pill in place and an acquirer ran a proxy contest in conjunction with a tender offer?  That's odd.  Strine doesn't appear to be impressed.  

Nachbar offers up a binding judicial admission on behalf of all the defendants  - B&N will not seek to enforce the language of "beneficial ownership" any differently than "beneficial ownership" is interpreted under DGCL 203.   Okay, now we're getting somewhere!

Taxin is excused.  Leonard Riggio is called ... but he's indisposed.  Okay, he's in the men's room.  He'll be in soon.   Riggio is now on the stand.  Going through some background - "Isn't it a fact ..." type questions.


Confusion reigns over binders ... it's time for a break!

July 9, 2010 in Cases | Permalink | Comments (0) | TrackBack (0)

Thursday, July 8, 2010

Pills in Court Today

It's been a busy day in Delaware - thanks to the wonders of the Internet and Courtroom View Network, I've been watching  the Versata v Selectica appeal before the Delaware Supreme Court (yesterday) and the Yucaipa v Barnes & Noble trial today.  The Yucaipa trial is going on in Vice Chancellor Strine's courtroom right now.  It's a four day bench trial.  

Investor Ron Burkle has already testified that B&N's pill is "draconian" and confusing.   There's now a lot of testimony by board member Patricia HIggins along the lines of the "I don't recall" and "I'm not personally aware" nature right now.  I'll be summarizing the proceedings later tonight or tomorrow.  


-Update I:  In a brief recess right now.  Higgins has been testifying in great detail about the process by which the board went about adopting the shareholder rights plan - and in doing so, she's hitting all the Unocal key words - informed, reasonable, threats, etc.

  -Update II

   Burkle lawyer: I object.  

   VC Strine: To what?

   Lawyer:  That which has not yet been uttered, but may be uttered.

   VCS (to witness): Don't utter that, otherwise it will be smote.  And bad things can happen when we start striking testimony...

-Update III: Greg Taxin now on the stand testifying as an expert (ex. 764 for those of you with Bloomberg Law).  He's testifying on proxy contests, the election of directors, and rights plans.   Testifying that there are two provisions that impact one's ability to run a proxy contest:  1) the 20% trigger, while insiders own more than 30%; and 2) the definition of beneficial ownership.  Nice charts - illustrating how often dissident proxy contests can win.  He's relying on data from SharkRepellent.  Dissidents seem to have won 32% of proxy contests over the past decade.

Here's the chart:


July 8, 2010 in Takeover Defenses | Permalink | Comments (0) | TrackBack (0)

Tuesday, July 6, 2010

Pills, Pills, Pills

It's a big week for the shareholder rights plan in Delaware.  We've got two high profile cases.  The first is the challenge to Barnes & Nobles' shareholder rights plan in the Chancery Court.  We've blogged about that saga here already.  Second is Versata's challenge to the Selectica NOL pill that will be heard at the Supreme Court.   Paul Thomas and Randall Thomas have a new paper on the Selectica NOL pill, Resetting the Triggering on the Poison Pill: Selectica's Unanticipated Consequences.  They argue that dropping the trigger level down to less than 5% will have an important, and potentially negative impact on the market for corporate control.  This paper is worth reading before dropping in on the arguments later this week.

Abstract: The Delaware Chancery Court recently applied the Unitrin case to uphold the validity of an NOL Rights Plan with a 5 percent trigger level in Selectica, Inc. v. Versata Enterprises, Inc. The Chancery Court’s ruling is sufficiently expansive that it sanctions the reduction of Rights Plans’ trigger levels to 5 percent at all Delaware corporations. Using a weighted voting model, we show that such an across the board reduction of trigger levels would have important, unanticipated consequences. In particular, we demonstrate that it would favor hedge funds and private equity firms at the expense of strategic acquirers, and that it would greatly increase the power of third party proxy voting advisors. We conclude that the Delaware Supreme Court should consider these unintended side effects in crafting its decision in this case, and that it should adopt an expansive reading of the meaning of preclusive defensive tactics based on its earlier precedent in Unitrin and Moran.

July 6, 2010 in Takeover Defenses | Permalink | Comments (0) | TrackBack (0)

Sunday, July 4, 2010

Amazon Acquires Woot!

Not the most conventional of press releases, but this has got to be the best merger announcement ever.  Woot! announces its acquisition by Amazon.  Typically, for a public-private deal the merger agreement requires that the seller make no public announcements with respect to the transaction.  All announcements should come from the acquirer.  But, if the seller is going to be this fun and creative, why not!

We thought there must be easier ways of making it big 
 without working like dogs and sweating like pigs
 …and then “boom!” we got acquired by Amazon!
 So no more rolling in late with our pajamas on.

..."You can labor all day til you're tired and old or 
 you can wait for Amazon to call and when they do you say '$old!' "  


Update:  For its part, Amazon didn't make any public announcement re the transaction, but Woot!'s CEO released this "serious" comment on the company's website describing the transaction.  It includes this jewel of a line in the FAQs: 

    Q: Is Snapster [the CEO]  leaving?
    A: Are you kidding? He’s out the door about ten seconds after that check clea--  that is to say, Snapster will continue as Woot.com CEO, just like before, and the rest of our staff’s not going anywhere either. 

July 4, 2010 in Transactions | Permalink | Comments (1) | TrackBack (0)

Thursday, July 1, 2010

NOL Pill Arguments Set

The Delaware Supreme Court has set July 7 for arguments in Versata's appeal of Vice Chancellor Noble's ruling in Selectica v Versata.   Briefs in the case are available via the Harvard Corporate Governance Blog. (Versata's brief and Selectica's answering brief).  The issue at stake is the legality of a shareholder rights plan with a 4.99% trigger adopted to protect Selectica's NOLs.  The Chancery Court held that board's adoption of the plan was consistent with their obligations under Unocal.  Hopefully the argument will be carried on CVN so we can watch from the luxury home.


July 1, 2010 in Cases, Delaware, Takeover Defenses | Permalink | Comments (0) | TrackBack (0)